Big Debates Ahead For U.S. Army In Congressional Budget Season - The defense budget season kicks into high gear next week, doubling down on existing fights over U.S. Army vehicles and missile defenses.
The House Appropriations defense subcommittee takes up its version of the defense spending bill June 1. Though members remain mum about the details, it will cut $9 billion from President Obama’s $553 billion request. “It will be somewhat difficult,” says Rep. C.W. “Bill” Young (R-Fla.), the subcommittee chairman. “But we will not affect the soldier. We will not affect readiness.”
Rep. Norm Dicks (D-Wash.) is more optimistic in his outlook, saying staff will certainly be able to trim $9 billion and add funding for other programs that sustained cuts in the president’s budget.
Asked whether the committee planned to increase funding for programs as the House Armed Services Committee did – providing more than $400 billion for Abrams tanks and Bradley Fighting Vehicles – Dicks indicates it is possible. “We’ll have to see the chairman’s mark, but I think there will be a few of those,” he says.
That points to a major dustup ahead over funding for Army vehicles and other programs, says Loren Thompson, chief operating officer of the industry-funded Lexington Institute. “The Army’s plan to close the [Abrams] tank plant has generated huge controversy,” Thompson says. “What that means for other next-generation programs is not yet clear.”
Look to Rep. Marcy Kaptur (D-Ohio) and other rust belt members of the appropriations committee to possibly add back funding for ground vehicles. She noted in a recent hearing that Pentagon cancellations of the Joint Strike Fighter’s alternate engine and Boeing’s Future Combat Systems, along with the recommended halt in production of the General Dynamics’ Abrams tank, are impacting jobs in the region.
And though the government is continuing to fund development of the Medium Extended Air Defense System (MEADS) missile defense program at $804 million for one more year, senators – particularly those in New England, where Raytheon, the maker of the system’s Patriot missiles, is headquartered – are rumbling about its problems.
Army Secretary John McHugh told senators recently that funding can’t simply be cut off, because of the program’s international partners, Italy and Germany. But that rationale doesn’t appear to be stopping efforts by lawmakers to de-fund the missile. “It’s clear that few members understand the Pentagon’s logic,” Thompson says.
Despite the $9 billion cut, or a potential larger one coming from the Senate side, some say supplemental funding will ease the pain and continue to do so until large reductions to the U.S. presence in Iraq and Afghanistan come in 2014.
This allows lawmakers to pick up a headline promoting a $9 billion cut to defense that may not materialize, says Greg Kiley, a consultant with Potomac Strategic Development. “Cutting it out of the base [budget request] with an open-ended supplemental is really disingenuous,” he says. (Source: Aerospace Daily & Defense Report , by Jen DiMascio)
Dodging the bullet: Small contractors say cuts spare infrastructure, parts market - Prime defense contractors may have seen better days, but some component suppliers may have new revenue streams in the offing as federal spending shifts from new equipment to repair and maintenance.
Small Southeast Michigan defense contractors and service companies don't expect to be impacted much by impending U.S. military defense spending cuts because they primarily manufacture much-needed repair parts for aging military equipment, said Dan Raubinger, director of defense and manufacturing for Troy-based Automation Alley.
"Military equipment that is coming back from Iraq needs to be (repaired)," said Raubinger, who works in Sterling Heights, adding that the parts are used on airplanes, ships and tactical vehicles. "And the repair parts we make here are highly valued."
Defense contractors that provide military infrastructure, such as Detroit-based Lakeshore Toltest Corp., don't expect to be hurt by cuts. The company continues to hire new employees, and its revenue hit $600 million last year.
The general contractor builds air installations and bases in 10 to 15 countries for the U.S. Air Force and the Army Corps of Engineers, said Executive Vice President Kevin Parikh. Recent projects include building a two-mile runway in Afghanistan, construction at the Dover Air Force Base and military family housing in Alaska.
"(U.S. Defense) Secretary Robert Gates' 20 percent cuts on the defense side will affect defense and missile systems as opposed to infrastructure," he said, adding that companies such as General Dynamics Corp. and Lockheed Martin will be more impacted.
Robert Bloom, CEO of Madison Heights defense supplier SSI Technology Inc., said he also expects an ebb in major purchases from prime contractors in favor of repair and upgrade contracts on existing equipment.
The maker of customized electronic and electromechanical devices has been a parts supplier on the Mine Resistant Ambush Protected vehicle, the M1 Abrams main battle tank and High Mobility Multi-purpose Wheeled Vehicle (or military Humvee.)
SSI has averaged more than $2 million in annual direct defense contracting revenue the past two years, according to the Federal Procurement Data Systems, and Bloom expects repair and maintenance orders will drive future business.
"We are looking at (future) requests put out by Tacom; if the current major (contractors) are cut back then we anticipate the reset programs will come along to keep vehicle fleets current," he said. "We're constantly looking at that and believe that's what will happen."
"Those maintenance opportunities are going to be there," said George Ash, partner and chairman of the regulated industries practice department at Foley & Lardner LLP in Detroit. "Vehicles like MRAPs are very expensive. They may not be the latest and greatest new technology, but they're still better than most anything now in the field. The government will want to maintain them."
Ash and others said a repair and maintenance contract request for MRAP components may be under development from the U.S. Army Tacom Life Cycle Management Command in Warren over the coming months. Steve Cassin, Macomb County director of planning and economic development, said his office will also hire a defense industry expert to work with defense companies on marketing products and help startup companies, to weather the downturn.
Macomb County Executive Mark Hackel also recently launched a formal Joint Defense Task Force, composed of business owners, executives, elected officials and military leaders. The group seeks to boost regional economic development potential in the defense industry.
More than 7 percent of all national defense contracts and 65 percent of all Michigan contracts were awarded within Macomb County, which is home to more than 500 defense-related companies.
The House of Representatives will vote on a bill that pegs the Department of Defense base budget at $553 billion, a drop of $24 billion or 5 percent from 2011 spending levels. Tacom officials also expect total contract spending this year to be just above $15 billion, compared with more than $30 billion in 2008.
But Ron Lamparter, owner and president of the Defense Corridor/Center for Collaboration and Synergy, said all the retrenchment in government budgets has a silver lining for suppliers.
At least 11 out of his 35 defense industry tenant businesses have set up new local offices at his defense center in Sterling Heights since the beginning of the year, including the new U.S. offices of British armor maker NP Aerospace Inc. with four employees, and Great Falls, Va.-based robotic software and imaging systems maker Robotic Vision Technologies LLC. Automation Alley has also doubled its office space at the center in recent months, he said.
He believes much of that growth is tied to out-of-state component supplier interest in future maintenance and upgrade contracting.
"That's sort of the upside of the downward (spending) trend," he said. "If there's a vehicle they've built 1,000 units a year for 20-30 years ... and you supplied one component, then your market was 1,000 units. But if they stop building and need to reset 30,000 old vehicles, suddenly your rebuild market is much bigger than your original equipment market would be."
Raubinger said his position requires that he meet with small Detroit-area business owners every week. What they tell him is the auto industry is back, and they are busy keeping up with demand for manufacturing tools and machines.
"A lot of these companies went out of business, but the ones that survived, because they operated smarter, more conservatively, they are leaner and healthier. There is still a healthy and robust manufacturing community in Southeast Michigan." (Source: Crain’s Defense Business, by: Marti Benedetti and Chad Halcom)
General Dynamics NASSCO Awarded $744 Million Contract to Build Mobile Landing Platform Ships - General Dynamics NASSCO announced today that it has received from the U.S. Navy a $744 million modification to its Mobile Landing Platform (MLP) contract to fully fund construction of the first two ships of the new ship class. Construction of the first ship will begin immediately, with delivery to occur by the spring of 2013. The contract includes an option for the construction of a third MLP which, if exercised, will increase the total contract value to approximately $1.3 billion.
“With the Mobile Landing Platform Program, NASSCO will continue our tradition of building high-quality ships for the U.S. Navy,” said Fred Harris, president of General Dynamics NASSCO. “The first MLP ship will start production with more design, engineering and planning work complete than any ship that NASSCO has constructed since World War II.”
The Mobile Landing Platform is a new class of auxiliary ship for the Navy. Once delivered to the fleet, these ships will join the three Maritime Prepositioning Force squadrons that are strategically located around the world to enable rapid response in a crisis. These vessels will change the way the Maritime Prepositioning Force operates. MLPs will provide a “pier at sea” that will become the core of the Navy and Marine Corps seabasing concept. This capability will allow prepositioning ships like LMSR’s and T-AKE’s to offload equipment and supplies to the MLP for transshipment to shore by LCACs or other vessels. MLP ships will be 233 meters (765 feet) in length and 50 meters (164 feet) in beam, with a design draft of 12 meters (29 feet). The deadweight tonnage is in excess of 60,000 metric tons.
This new contract will significantly reduce the number of employees affected by the previously announced potential layoffs at General Dynamics NASSCO. As ship construction gets underway in earnest, the total number of employees at the shipyard may increase by the end of 2011. (Source: PRNewswire, General Dynamics NASSCO)
GULFSTREAM RESUMES G650 FLIGHT TESTING - Gulfstream Aerospace Corp. has resumed the G650 flight-test program, following a temporary suspension of flying after an April 2 accident. The first flight since the accident took place May 28, with Serial Number 6001 flying for 1 hour and 39 minutes. The crew included senior experimental test pilots Jake Howard and Tom Horne and Flight Test Engineer Bill Osborne.
“We have conducted all the necessary reviews to assure ourselves that we can safely resume the flight-test program at this point,” said Pres Henne, senior vice president, Programs, Engineering and Test, Gulfstream. “We have worked closely with the Federal Aviation Administration in this process and received the agency’s concurrence to resume flight testing. It is our responsibility to move forward with the flight-test program, and we will do so in a safe and prudent manner. The G650 will enter service as the flagship of our product line, where it will represent the very best in business aviation technology.”
To date, the G650 flight-test program has accomplished 470 flights, accumulating 1,560 hours towards the estimated 2,200 hours required for certification. Gulfstream resumed flying with the four remaining flight-test aircraft. The company still anticipates certification in 2011, with service entry in 2012, as was originally planned at the aircraft’s public launch in 2008.
Gulfstream continues to cooperate with the National Transportation Safety Board (NTSB) in its investigation. (Source: PRNewswire)
Business Jets Take Off in China - The world's makers of executive jets are pinning their hopes for sales growth on the swelling ranks of China's super-rich.
The Chinese market is booming while mature markets in Europe and North America remain lackluster after nose-diving last year. For example, half of new orders for Dassault Aviation SA's Falcon jets since the beginning of this year have come from China.
"China has become a very important part of our business," John Rosenvallon, head of Dassault's Falcon division, said at the annual European Business Aviation Convention and Exhibition here last week.
What the business-jet builders like about the Chinese market is that it is virtually untapped. Almost all the new orders are from customers who have never owned an aircraft before, unlike in the U.S., where some two-thirds of new orders are from repeat customers. And unlike in the West, Chinese buyers are jumping in at the top end of the market, buying planes with sticker prices over $50 million.
"In the U.S. business-aviation market, people tend to start with a small aircraft and then graduate to bigger aircraft—for example, going from a Cessna to a Hawker Beechcraft to a Gulfstream, and finally they get to a Boeing business jet," says Li Bing, head of Boeing Co. business-jet sales for China and South Korea. Boeing has sold eight business jets to Chinese buyers in the past four years and is aiming to retain its 50% share of the Chinese market for large business jets.
Meanwhile, Airbus, of Toulouse, France, expects to continue selling about five corporate-jet versions of its commercial aircraft a year to Chinese customers. These top-of-the-market jets typically sell for $65 million or more apiece.
Airbus, a unit of European Aeronautic Defense & Space Co., has sold 25 corporate models of its commercial airliners in China, Hong Kong and Macau over the past eight years. Both Airbus and Boeing offer cabin designs tailored to Chinese customers, including a circular dining table with a lazy Susan, to allow passengers to eat "family style" or play mahjong.
"The potential for long-term growth in China is huge," says Charles Edelstenne, chief executive of Dassault Aviation. (. . . )
The current leader in the Chinese market is Gulfstream, a division of General Dynamics Corp. It has close to 40% of the Greater China market, with sales of more than 58 planes, half of which are based in Hong Kong. "The Chinese market barely existed 10 years ago," says Jeff Miller, Gulfstream's head of communications. But, he adds, it would be a mistake for the company to embark on a major sales push before it has established a proper infrastructure offering quality after-sales service. "We're being realistic. We don't have stars in our eyes," he says. (Source: The Wall Street Journal)
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